The US dollar (USD) remained firm near a two-week high as market concerns over US military action in Venezuela eased and dovish comments from Fed officials also fueled investors’ risk appetite on Wall Streets.
At 9.30am, the US Dollar Index (DXY) was at 98.348 points, having remained modest since it opened early in Asian trading on Tuesday.
According to Rodrigo Catril, currency strategist at National Australia Bank, Sydney, the market does not seem to be too concerned about geopolitical developments at the moment.
This situation reduces demand for safe assets and puts the US dollar under some pressure.
Financial markets have been shaken after the attempted overthrow of Venezuelan President Nicolas Maduro, which has triggered volatility in commodity prices. Maduro is facing drug charges in Manhattan federal court.
Pressure on the USD came after dovish comments from Minneapolis Federal Reserve President Neel Kashkari, who warned that the unemployment rate could soar.
This has fueled speculation of policy easing, although the market still gives an 82.8% chance of interest rates being kept on hold at the Fed's meeting in late January, down slightly from 83.4% last Friday, according to CME Group FedWatch.
US manufacturing activity data that fell more than expected in December to a 14-month low also added to pressure on the dollar.
Capital Economics said the decline in the manufacturing index showed the sector lacked momentum, but not enough to prevent strong GDP growth in the coming quarters.
What is clear is that despite the Venezuelan tensions easing and risk sentiment rising, the dollar is showing no signs of dominating the market.
The Fed's dovish comments and weak economic data actually open up room for uncertainty, suggesting the USD remains vulnerable to fundamental shocks that may emerge as global markets develop.
